Is the European Union promoting entrepreneurship and innovation?

May 5, 2021

Supporting startups is not just a question of money, regulation should also encourage starting and scaling up.

In its working programme, the European Union has made the promotion of innovation and entrepreneurship one of its priorities. Through numerous funding programmes and initiatives, the European Union is making efforts to step up its game to become a scale-up continent and be home to new tech giants made in the EU. 

Or at least in some ways it is. 

Funding programmes and initiatives are not the only pieces to build an attractive and flourishing environment for startups. Most of the time, startup entrepreneurs are not looking for a lengthy programme to apply to get funding from the European Commission but for an attractive regulatory environment where they know they will be able to startup and scale up with legal certainty. They are confident that funding will follow with a good idea and the right regulatory environment. 

After several months of consultations with startup communities and Allied for Startups, the European Commission released the Startups Nations Standard. The initiative incentivises Member States to implement tried and tested best practices that have the potential to make national ecosystems attractive innovation hubs for entrepreneurs. This is a step in the right direction in raising awareness about what startups need to thrive.

However, more can be done at the EU level. The Commission’s position about promoting innovation and entrepreneurship is a good first step but we wonder if the actions of the Commission are aligned with this position. Startups are digital-first. They thrive in a digital world and provide numerous solutions to citizens and the society at large. Any legislation targeting digital activities and technologies will directly affect them. 

The Artificial Intelligence, the Digital Services and the Digital Markets Acts are three recent pieces of legislation that will directly impact startup ecosystems globally. Some provisions and requirements in these files could be discouraging many entrepreneurs to start their business or to scale it in the EU. While the Artificial Intelligence Act offers regulatory sandboxes, which allow them to innovate in a controlled regulatory environment, it also imposes costly and lengthy conformity requirements for AI systems, which will in no way incentivise entrepreneurs to develop high-risk technologies in the EU. Although no single requirement is impossible to meet in the Digital Services Act, the total cost of complying with all of them will likely turn into a barrier to market entry or build obstacles for startups to compete with big players. The Digital Markets Act’s objective is to ensure fairness and contestability but might end up implementing prohibitions or obligations that have chances to repel startups who want to scale in Europe. 

Often, as an advocacy organisation working with multiple policy makers and stakeholders, we witness the gap between promoting entrepreneurship and innovation, and the lack of consideration for startups’ resources and needs in EU regulatory requirements. Burying entrepreneurs with costly compliance measures will only encourage them to innovate and scale in other regions of the world and will have indirect consequences to the well-being of European consumers, as fewer services will be offered to them. 

The European Commission’s efforts to support startups through funding and initiatives are in vain if regulation makes it harder for startups to develop their ideas in the first place. Ultimately, all digital regulation should consider how it may affect the smaller actors of our economies. 

Entrepreneurs in Europe want to be able to comply with every law from day one, without this compliance equaling to a loss of innovation for their business. We urge European policy makers to see legislation through the lens of entrepreneurs and design a regulatory environment promoting entrepreneurship and innovation.